Property rental market will remain strong despite possible interest rate rise
7 November 2006
The residential property investment market will remain strong despite predictions of a quarter percentage interest rate rise this week, as higher interest rates will increase demand for rental properties, says Mortgages for Business, UK Buy to Let mortgage broker.
Whilst an interest rate rise this week will be bad news for first time buyers, it will help keep demand for rental property high.
Meanwhile, some Buy to Let lenders are also beginning to offer ‘breathing space’ to property investors with the introduction of mortgage products with 100% rent to interest cover calculations (instead of an industry norm of 125%), so if interest rates rise investors can still meet the rent to mortgage payment multiple. The lower rent to mortgage payment multiple also allows lenders to offer 90% loan to value (instead of an industry norm of 80-85%), because investors can afford to borrow more against rental income.
The lowering of rent to interest cover calculations can mean the interest only mortgage payment only needs to match the monthly rental for the mortgage decision to be granted in principle. The move towards a lower 10% deposit will allow new landlords to continue to enter the market and for those with existing properties to invest further.
David Whittaker, Managing Director at Mortgages for Business comments: “The majority of landlords have taken a wait and see approach to remortgaging, with fixed rate mortgages highly priced due the rising swap rate market.”
“Competition in the market has increased with the introduction of new mortgage products and in a year that has seen an increase in the number of Buy to Let mortgage providers entering the market. Investors should however be aware of the larger arrangement fees that these new products may attract, but it is worth considering your ability to offset the cost over the life of the mortgage”.
